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H2 Econs [Market Failure] Education in Singapore

Education is one of the most classic markets that exhibits characteristics of market failure. However, standing at 16% of the government's fiscal budget in 2018, it is clear that education is and has been a key priority for the Singapore government. Investing in a high quality labor force has been a major driver of Singapore's economic success since our independence, and maximizing our small labor force continues to be a key strategic focus to ensure sustained economic growth into the future. Due to the inherent nature of education being a merit good that generates substantial positive externalities it is no surprise that the government intervenes heavily in the education market.

1. Free Direct Provision of Primary and Secondary Education

The government, through the Ministry of Education (MOE), directly operates and manages all primary and secondary schools in Singapore. This has allowed the government to effectively provide primary and secondary education for free to all Singaporean children, charging a nominal administrative fee. Clearly, free primary and secondary education means that all households who are willing and able to consume primary and secondary school education would be able to consume; the free market equilibrium would be where D = MPB = 0, since education is provided free so price (p) = 0. This will generate the largest possible gain in consumption of education. Considering that education when provided by the free market would be under provided due to imperfect information, income inequality and positive externalities, such an increase in consumption should improve the allocative efficiency in the market. Another consideration of the government would be equity; ensuring that education is free and accessible to everyone regardless of ability to pay so that every child has an equal opportunity to succeed in meritocratic Singapore. Even if free provision results in some deadweight losses due to the over provision of educational services, the government would likely accept some inefficiency in exchange for greater equitability in resource allocation; ensuring that every child gets a fair shot in life.

2. Direct Provision and Subsidies in Post-Secondary and Tertiary Education

Post-secondary education in Polytechnics, ITE and Universities are not free, but Singaporeans pay heavily subsidized rates at these government-funded institutions. Compared to foreign students, Singaporeans pay less than a third of full-priced tuition fees at government-funded universities. Direct provision by the government ensures that education is provided at the socially optimal level of output since the government seeks to maximize the welfare of society. The government would then charge the price according to consumer demand at the socially optimally level of output, which would be a subsidized price in order to encourage greater consumption.

3. Compulsory Education Act

Despite primary school education being free, some students will fall through the cracks due to imperfect information. Parents could be reluctant to send their kids to attend school due to the need for their kids to help out at home with younger siblings or at work to supplement the family's income. They could be doing so without knowing or considering the repercussions of denying their children basic education. To overcome this, the government can leverage on the fact that primary school education is free to compel parents by law to send their children to school. This would raise the demand for education since parents will not be constrained by their ability to pay and their willingness becomes irrelevant in light of the law compelling them to send their children to school. Legislation thus ensures that all Singaporean children will be able to attend school, achieving the aim of equity and improving allocative efficiency in the market at the same time.

4. Lifelong Learning: Education & Campaign and Subsidies

The latest pillar of the government's slew of education policies is to emphasize the importance of lifelong learning, encouraging Singaporeans to continue upgrading their skills and learning through their lives. There are substantial positive externalities associated with adult learning: stronger economic growth from a workforce that is continuously upskilling and reducing the burden on the government to provide unemployment benefits to support workers that get displaced by automation. By emphasizing the value of attending courses and upskilling, workers could get swayed and develop positive attitudes and interests towards education, raising the demand for such courses. The government has also provided subsidies, such as the $500 Skillsfuture scheme where every Singaporean adult above 25 years old can pay lower course fees when attending courses to upgrades themselves. Together, the rising demand from changing consumer attitudes and subsidies should encourage the increased consumption of educational and training services.

5. Conclusion

Education has and will remain a key area of government spending in Singapore, and Singaporeans have been extremely fortunate to benefit from world class education at little to no cost. While government provision is often criticized by economists for lacking in quality due to the absence of the profit motive, there is nothing slip-shod about Singapore's education system, as evidenced by our students consistently coming out tops in globally recognized tests and examinations. Through careful planning and execution, the Singapore government has done a phenomenal job of ensuring that underconsumption in the education market is a distant concept, achieving efficiency and equitability in the allocation educational resources.

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